A Discussion On Social Costs

Any costs we pay that we did not create is a social cost. Social costs are such things as unemployment, poverty, debt, inflation, taxation, pollution, business cycles and all those things that transfer costs from one agent that created the cost onto society and future generations.

It may appear to be smart to avoid paying costs one creates. The free market suggests this gives an advantage. The hunter that can access a kill made by another hunter save himself a lot of calories and risk; at least potentially.

But how do we do the accounting?

A business that closes and lays off 3000 workers may have no choice within the present economic system. However, the choices that led up to the firings need not have had anything to do with the community that is now burdened with the costs of the 3000 unemployed persons.

The business that shuts down and lays-off 700 employees may feel similarly pressured though the owner may well decide to move operations to China or some other site. The owner reaps the reward of cheaper labour and an open market to his goods. It is the best of both worlds for the manufacturer. But the company is not paying the full costs of the move as the costs created by the lay offs are off the books.

The same holds true when a manufacturing establishment pollutes a stream. The costs of the chemicals are a cost of the company. If these chemicals are disposed of in a safe way this is an additional cost. If the chemicals are dumped in a river then the company avoids the cost of their disposal. This is a cost that is externalized onto the wider community. Perhaps the community loses a fishery or even human life’s due to the pollution. But it is costs that the company may be able to avoid paying.

These kinds of situations are not uncommon, and the state must exercise a great deal of oversight at considerable cost to prevent companies and individuals from doing what may make sense from an individual perspective but not from the perspective of a state that usually must cover any costs avoided by the private sector.

The state covers the overage of the private sector because the private sector and the state have a symbiotic relationship. The state legitimizes the private sector such as it is and cannot abandon them when they incur costs they cannot sustain as it would require us all to re-think this system. The right and left to a large extent feed off of each other. No one wants to admit they are part of the problem. It is always the other person who needs fixing. For 6000 years we have been fighting to fix the blame elsewhere, it is what fuels the left/right debate.

Most people prefer a degree of laxness. They do not want to be in an environment governed by implacable rules. Even if they obey the rules they want the freedom to be able to fudge obedience now and then, the sense that they could beat the odds if the choose.

Dictatorships are viewed by most as oppressive systems they would as soon die opposing as live under. But, what is it we are actually opposing? Do we oppose the rule of law, do we oppose the idea of morality or the concept of doing what is right? The bible is a book that demands we do the right thing, is this not dictatorial? What about a system in we all have to pay the costs we create? Is this unjust? We seem to think so. We want to have the freedom to throw cigarette butts out the car window even through this may case forest fires. We want to be able to speed despite the people killed because we, unlike them, know what we are doing and can handle a car travelling at high speeds.

We want laws against theft for other people because we know some people are just criminals and need to be controlled, but we reject too much policing for ourselves because we understand the spirit of the law and know when taking things is not that big of a deal.

There are a lot of reasons to be nervous about being dictated to by human beings, but we ought to be honored to be dictated to by God. We ought to want to be dictated to by moral principles. There ought to be a strong desire to be dictated to by reason and logic. Too often it seems as if we get caught up in the moment and just want to let the experience dictate our response.

Social costs are costs we create that we do not cover and often cannot cover. Murder is one of those costs which cannot be paid for not even with our own death. That level of harm cannot be reversed or compensated for.

But we do not want to be dictated to by justice. We want a system that is more forgiving and tolerant than the one described in Scripture. We do not want to live up to that high a standard.

Capitalism gives us a free market in which we buy what we want according to the price of the product. It is to our benefit if the price of the produce does not equate its cost of production. We benefit, or we feel we do.

If the production process pollutes a stream and society cleans this up, we still get the cheaper product and only a small percentage of the clean up costs. We feel we come out ahead. But we are getting a small percentage of all the social costs created. Does it help to pay 10% of $100.00 tend times or one flat charge of $100.00? The point is in this present system we have no idea of the extent of the social costs. Pollution, unemployment, debt, poverty and crime are all social costs, and all require we pay towards their reduction. We have no idea what the totals are nor what the costs would have been had these social costs been applied to the source that created them.

If producing a newspaper pollutes a stream why ought not the full costs be applied to the newspaper? Why ought society to pay for the pollution in lost amenities and clean up costs? If the paper cannot survive when the full costs of production are applied to the product then by the principles of the free market ought the newspaper to be in business? If the cost of having some products available is to have society subsidize the product ought not society to own the production facility outright? If society ends up paying the costs of production, then by rights society ought to own the facility that is creating the costs.

This is not a suggestion the state rather than an agent ought to own the productive assets, or capital. State ownership does not prevent the formation of social costs in fact just the opposite.

If the system does not contain all costs then the system must expand to embrace all those who pay the costs, that is all stakeholders need to be included in the cost-creating activity. Positive Exchanges are organizations that bring all stakeholders to the table. All costs are by this means kept within the productive process and the products and services produced carry a price that reflects their true cost of production. Exchanges eliminate social costs.